Monday, August 17, 2009

Saving Face at All Costs

China's stock market, which, until a couple weeks ago, had nearly doubled from early January, has run into some trouble.

From Bloomberg:

Chart from Bloomberg

China’s benchmark stock index, the world’s worst performer this month, may fall another 10 percent as bank lending slows, said Andy Xie, a former Morgan Stanley chief Asian economist.

“The current correction is reflecting the tightening in lending,” said Xie, who correctly predicted in April 2007 that China’s equities would tumble. “We’ve seen the peak of this market cycle, though there’s likely to be a bounce as the government seeks to stabilize the market.”

The benchmark Shanghai Composite Index plunged 5.8 percent yesterday, the most since Nov. 18, extending its decline from this year’s high on Aug. 4 to 17 percent. The gauge, the worst performer among 89 benchmark indexes tracked by Bloomberg worldwide, sank as foreign direct investment plunged and Yunnan Copper Industry Co. posted a loss, saying there are “no clear signs” of a recovery. The Bank of New York Mellon China ADR Index, which tracks American depositary receipts, slumped 5 percent, the most since March 2.

Prime Minister Wen Jiabao’s 4 trillion yuan ($585 billion) stimulus package, coupled with record bank lending in the first six months, helped the Shanghai index more than double this year from the low on Nov. 4. An estimated 1.16 trillion yuan of loans were invested in the stock market in the first five months, China Business News reported on June 29, citing Wei Jianing, a deputy director at the Development and Research Center under the State Council, China’s Cabinet.

The equities rally faltered as new loans in July fell to less than a quarter of June’s level and the securities regulator allowed initial public offerings after a nine-month moratorium.

The government may order the national social security fund to support the market before Oct. 1, when the Communist Party celebrates the 60th anniversary of taking power, according to Xie. Other measures that may be taken include halting the approval of IPOs and share placements, he said.

“This is not the bursting of the bubble,” Xie, who is now an independent economist, said by telephone. “The government will be under pressure to take action because a lot of people have lost money.”


Read On
I'm not simply posting this because of the huge loss that was posted yesterday. For all I know, stock prices may be up today or by the end of the week. Reacting to every rise or fall of the Chinese stock market will probably not tell too descriptive of a story and will instead surely paint a very bi-polar picture.

The thing about this article that struck me were the comments from the analyst, Mr. Xie, about the upcoming anniversary in China and the need to have things "going well" when that day occurs.

Is the "government action" that Mr. Xie says is imminent the most prudent thing to do at this time? I suppose it depends upon what that action is. If it were regulations aimed at promoting stability in the markets and economy, then those could be a good thing. But if it is simply more cash aimed at propping up otherwise stalling and over-inflated markets, then I would think that that would be pretty harmful.

A few days ago, there was a discussion in the comments of one of my posts about the notion of "saving face" and how important and central to Chinese culture the concept is. Hopfrog, a frequent commenter, encapsulated the absurdity of doing things for the sake of saving face very well, I think:
I personally think if it weren't for this whole ingrained "save face" concept that the government would do the right thing and regulate their markets to prevent the crash, which I will guarantee, is imminent.

Saving face is without a doubt the most moronic ancient concept among any culture on the planet. Yeah, let's not be open and honest and try to improve... why would we do that when we can lie to ourselves and each and continue to make mistakes while maintaining a false pride based on lies?? BRILLLIANT!!!
I'm not a savvy investor and this stuff that drives how markets work is all new to me in the past year. But the idea that saving face would be the driving force behind government economic policy and particularly the intentional creation of a bubble is crazy to me.

If money is pumped into the Chinese markets so that October 1st is a grand day, I really hope that China has a glorious day that they remember forever. Because it'll certainly be an expensive one.

16 comments:

Hopfrog said...

Woo Hoo! made the front page. I feel like a groupie that just got invited up on stage.

Yeah, you know when I saw the crash I immediately thought about our conversation just a short while back and about that poor old timer that put his faith and his wallet in the system. Again, the quote you cited from the analyst is perfect evidence and a perfect example of the lengths that the culture will go to in saving face.

To me, even a 5th grader can look at that chart and see what is about to happen. If the govt pumps in money to save face for a little bit longer, than it will only mean an even bigger crash. What this means for the more savvy investor over there is a government funded opportunity to bail out of the market before the crash.

And once again, I must cite an example from River Town. When Hessler gets a tip from a financial analyst back in the states that the market in China is about to crash and tries to convey that to his tutor who is in the market, and she just smirks as if this outsider couldn't possibly understand China or its market as well as she does. Kinda reminds me of that old timer's comments. Well, some of us learn the hard way and a lot of people are about to get burned.

Ramesh said...

The most absurd reason to prop up the stockmarket is to "save face". As Hopfrog says, its only going to make the crash worse. I find it amazing that cycles are more severe here in China, than even in the supposedly "wild west" markets in the Anglo Saxon world. Its a mystery as to why there isn't more hue and cry from the people who have lost their shirts here.

pug ster said...

Big deal. Stock markets go up and down all the time.

Hopfrog said...

Stock markets going up and down is not a big deal. Stock markets CRASHING = big deal, and big difference.

pug ster said...

Compared to US's stock market Shanghai's stock is extremely volatile. Yet it has little indication of the health of China's economy as a whole. It is not like the Stock crash of 1929 which eventually led to the depression in the 1930's. While I am at it, why does Mark always post these doom and gloom stories about China, didn't say anything about rise of the stock market in the last couple before the 'crash' this month?

Mark said...

Are you kidding, Pugster?!

I know you've been reading my blog for a while since you've been leaving critical comments on it for some time now. I've been talking about China's stock market and its rise tons over the past several months. I've been skeptical of the whole thing, but I talked about it a lot when it was going up.

pug ster said...

Mark,

China's stock market is always a speculative, pump and dump, sell by fear. Yes there is a problem within China as there is a lack of a stable form of income like bonds with good yields. I recall that some people in HK is pissed off at Lehman Bros as they are sold 'guaranteed mini-bonds' but all but evaporated when the company went under. Government's bonds offer little interest at all if any, so the other way to put money is on real estate, which is also pretty speculative. Saying that, I certainly think that China should allow its citizens access to outside markets so that they invest in instead of these speculative markets within China.

Hopfrog said...

Actually, pug ster makes some very good points here. From what I understand, the market in China is not nearly as tied to the economic health of the country as it is here in the states. Also, you are spot on about the importance of having investment options that are not speculative. I sense this is why so many Chinese that live here in the states place such a high importance on saving and buying as many homes as possible. Unfortunately a lot of them got burned in our real estate crash because indeed, as pug ster stated, real estate is still speculative.

Pug, I know when you see a lot of posts about China's problems it may seem like doom and gloom, but its more of a cultural thing than a desire to paint China in a bad light. Over here in the states we have a long tradition of speaking out about our country's problems and if Mark were doing a blog over here in the states I can almost guarantee, at the risk of speaking for Mark, he would be posting similar stories about problems that America should be looking to avoid or improve. Its pretty clear to me that Mark loves China, its culture, and its people and would love to see it improve. Try and avoid being too hasty about what the message is and think a bit outside the box.

Mark said...

I'll take your guys' word on what Pugster is talking about. What you guys are saying makes sense to me.

Hopfrog is right. I do love China, its people, its culture, and so many things about the country. China, and specifically Xi'an, is an AMAZING place.

There are things that strike me as troubling though and I often talk about them here on my blog. Do you want to read me gushing every day about how great my life and China is? At least in the West, that's not what journalism (or blogging) is all about.

Although I often highlight things about China that trouble me, I, at the same time, have also had a number of posts recently about Qian and me and getting married and all of that stuff. So it should be pretty obvious that I care strongly about China and its people and am loving the fact that my life is now tied to the country. If that's not coming through on here, then I'm not doing a very good job with "Mark's China Blog" because I care very deeply about China.

I don't really like the "doom and gloom" label. You're not the first person to say this about me and my blog. I can understand why people say this about me. While China's stock market has been going crazy high, I've focused a lot of the time on here about expanded credit and bad loans and unemployed migrants. I can see why someone would think that I'm a perma-bear or a doomer.

I suppose it's just that the way China and the world is handling the economic crisis is troubling to me. I can't get excited about the "recovery" that is currently taking place.

One of the reasons I'm concerned about China is because the country seems to be copying a lot of the same practices that got America into the mess it is in. It's not that I think Chinese people are stupid or that I want its economy to have problems. Those are not that case at all.

It just bothers me seeing Chinese banks get all leveraged up with bad loans just so that China can "achieve solid 8% GDP growth while the rest of the world wallows in recession." What's the point of an 8% GDP growth if the country has to sell its soul to get there?

I appreciate both of your guys' comments on this thread (as well as Ramesh's). I actually appreciate all of the comments you guys leave on here. Your opinions on this topic, and anything thing I write on this blog, deepen the discourse and add a lot to what I present.

pug ster said...

Mark,

The reason why I said about the 'doom and gloom' statement is the the title of the blog 'Saving face at all costs' has nothing to do with the shanghai stock market at all, rather than it is from a comment from Hopfrog. I don't blame on you guys though, as these so called Western 'experts' forseeing the collapse of the Chinese economy for the past 30 years, which hasn't happen yet.

I don't see anything wrong with the Chinese government by tightening credit recently as the stock market has been white hot for the past 9 months. Let the market correct itself and see what happens. The US government would probably do something similar like raising interest rates. It is better than loosening credit even more, stock market goes up even more and then there's going to be even a bigger 'crash' later on.

Hopfrog said...

"these so called Western 'experts' forseeing the collapse of the Chinese economy for the past 30 years"

Those western experts haven't been predicting the collapse of the Chinese economy for the last 30 years. In fact for about the last 10 years all you can find on TV about China are documentaries on why it will become an economic juggernaut.

No one is predicting the collapse of the economy, in fact I laid out previously severals reasons why China's economy overall will not collapse.

No one is making up stories about saving face and the government's desire to falsely prop up the market, its all being said by Chinese nationals in the industry, as you can see from the quote in the post.

I get the feeling we have had a conversation before about movies. The sentence structure and grammar you use is giving me deja vu. I may be wrong, but thats the vibe I get. Anyways, it seems you feel we are anti-China and this is far from the truth, but I certainly would like to see the Chinese consider a western viewpoint. Yes I know China has been around for 2,000 years yadda yadda yadda, but would it really hurt to actually consider a foreign point of view?

pug ster said...

You are making up stories about 'saving face.' None of the articles, from AP, bloomberg, NY Times, and AFP (whatever that is) mentions that word in their articles or even allude to what kind of 'face saving' moves by the government. Morever, you mentioned "Saving face is without a doubt the most moronic ancient concept among any culture on the planet.' as a insulting to Asians and Chinese in general. Instead, you made it up as some kind of dumb skit so that China can 'maintain a false sense of pride.' Furthermore, Mark made that dumb joke about the title 'Saving face at all cost' is another insulting statement. None of the articles allude to this. That is why I am sick and tired of the 'foreign point of view.'

Mark said...

Pugster, just because you did a Google search of "China saving face economy" doesn't meant that none of the articles allude to this.

The article I featured in this post is about saving face - making sure that the economy good for October 1 so that everyone is happy. That doesn't constitute saving face?

The title of this post is a joke? Pugster, you really have no sense at all of how I write or what I'm trying to say. The title of this post isn't a joke.

If you're sick of the "foreign point of view," you should probably stop reading my blog. You should probably also move back to China.

I've asked you before and I'll ask you again, why do you play your 愤青 role from America? I don't understand why such a nationalistic Chinese person chooses to live in the United States instead of China.

pug ster said...

Mark,

You're right, I don't like to read your blog. However, I don't like the racially insensitive remarks by both you and Hopfrog about the Chinese in general and that's something I won't ignore. Worse of all, both of you don't seem to think it is racially insensitive at all. Mark, and I find it appalling from you have little understand of that because you lived in China for so long.

And no, I won't go back to China as I live here in the states longer than you are born. Labeling me as a Fengqing certainly shows your lack of maturity.

Mark said...

This is classic Pugster, Hopfrog. These comments are beginning to sound a lot like this headache-inducing discussion from this post back in April.

It's like he is allergic to staying on topic or addressing questions asked to him. I don't think it is a problem with his English. Must be a problem with his logic or something.

If he keeps running around in circles and refusing to acknowledge the points and questions presented, this thread will be closed down.

I try to give Pugster the benefit of the doubt and be respectful of him. He makes this a very difficult task though.

Mark said...

Saying the concept of "saving face" is stupid = racism?

Great logic there, Pugster.

You. Fail.